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Special Report

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Brazil's lower house has since voted to suspend patents for AIDS drugs. At the end of June the government announced that it was going to appropriate Abbott's Kaletra. Brasilia announced that the company had two weeks to make a counter-offer.

Understandably, the company caved, agreeing to provide ever-increasing amounts of its drug at the amount expenditure, and to yield its technology in 2015. But these concessions were like blood in the water for sharks. Brazil's health minister, Correio Braziliense, announced that the tentative accord wasn't enough: "The process of a compulsory license is still ongoing and breaking the patent has not been discarded as a final alternative."

Which means Abbott will have to give more or lose its patent. Then next on the target list are Gilead Sciences and Merck, with whom Brasilia is conducting Don Corleone-like "negotiations."

THE U.S. GOVERNMENT SHOULD punish Brazil economically -- "as a last resort," of course.

Washington generally has no duty to protect the profits of American firms that operate overseas. But in this case firms have no opt out -- Brazil simply says, give us your product or we will seize it, irrespective of where you conduct business.

The consequences are potentially dire. Antiretrovirals exist only because profit-minded drugmakers have invested billions of dollars in R&D. Roberto Gouvelo, a legislator from the governing Workers' Party, complained that one AIDS drug purchased by the government costs ten times its production cost. Unfortunately, however, industry investments must cover not only the successes, but also the failures, which are many. Even larger outlays are likely to be necessary to develop a vaccine for HIV/AIDS, as well as cures for a multitude of other serious diseases.

Should countries take new medicines whenever they want to pay less, pharmaceutical manufacturers will turn their attention to less important but less risky endeavors (most notably the "me-too" drugs routinely denounced by industry critics). It would be bad enough if Brazil stole American medicines for its domestic market. But if Brasilia begins exporting generic substitutes, it could destroy pharmaceutical innovation.

Brazil's threats highlight another problem. By artificially driving down prices, such controls increase the gap between domestic and foreign prices, creating the perception that drugmakers are treating American consumers unfairly. That, in turn, increases pressure for so-called reimportation of the very drugs being sold under foreign price controls.

Washington should attempt to educate Brasilia. India serves as a good example: once a celebrated patent-breaker, New Delhi now sees pharmaceuticals as an emerging industry and has instituted a legal regime to protect intellectual property.

The U.S. also should indicate that Brazil's behavior risks disqualifying it from joining any free trade system including America. The de facto theft of U.S. patents is inconsistent with open access to the American market.

Since Brasilia continues to misuse patent provisions intended to resolve a health care emergency, Washington should file a complaint before the WTO. Washington should consider direct sanctions as well.

Brazil certainly does not deserve preferential access to the U.S. market under the generalized System of Preferences (GSP) program. Brasilia's ability to export $2.5 billion worth of goods to America duty-free already is undergoing a special review while the USTR considers the effectiveness of a Brazil's system to combat copyright privacy. The Bush administration also should use a Special 301 investigation and penalize Brazilian exports.

Moreover, Congress should empower the U.S. Trade Representative to suspend recognition of intellectual property rights for companies headquartered in countries that violate American copyrights and patents. Retaliatory sanctions obviously should be a last resort, since a trade war is in no one's interest. But if Brazil hopes to become a significant economic power, it should stop looking at U.S.-made pharmaceuticals as a free lunch.

If people won't pay for their medicines, drugs won't be created. Washington must protect the intellectual property which has created a medical boon for the entire world.

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Trade, Health Care, Business, NATO, Africa